Markets start F&O expiry week on a disastrous note; FIIs flee on GAAR concerns

Stock markets in India suffered a lethal blow on the first day of F&O expiry week of March series as the benchmark equity indices suffered a nasty, close to two percent laceration on humungous volumes and drifted to the lowest levels seen in last two months. The important psychological 5,200 (Nifty) and 17,100 (Sensex) levels remained strong supports for the frontline indices for most part of the day however, sentiments got dampened in the late hours which pulled the key gauges below those crucial levels by the end. Foreign funds feared that with the new set of tax norms, General Anti-Avoidance Rules (GAAR) coming into effect from next week April 1, 2012, the income tax department will have the power to deny individuals and entities the benefits of any tax avoidance treaty that may presently exist. This raised the prospects that the government could tax so-called participatory notes, or P-Notes, through which nearly 17% foreign investors buy into Indian equities, that represents about Rs 1.8 lakh crore. The rate sensitive counters like Realty continued to do bulk of the damage after reports that Maharashtra government in order to increase its revenues has proposed a steep hike of 160 times in stamp duty for leave and license agreements for residential and commercial properties. The news weighed heavily on most developers including Indiabulls Real Estate, Oberoi Realty and Housing Development & Infrastructure. While, the Banking index too got bludgeoned on concerns that the RBI may not cut interest rates in view of high international crude oil prices and ahead of the government's borrowing calendar due this week. Market participants also remained worried over the nation’s fiscal deficit target and amid speculations that inflationary pressure on the economy is likely to resurface. Amid the depreciating rupee and spiking international crude oil prices, the resurfacing inflation concerns multiplied the worries of investors because there was excise duty and service tax increases in the budget, which is feared to add to inflation. Besides, sugar stocks failed to move higher ahead of an Empowered Group of Ministers (EGoM) meeting which may decide on allowing an additional one million tonne of sugar export in the 2011-12 marketing year.

Leads from the Asian counterparts remained lackluster as major markets like the Chinese and Japanese closed on a flat note with trivial gains, lacking any significant triggers to move to high levels. However, European markets started on a positive note on the back of a report which showed German business confidence unexpectedly increased in March and provided some support to the local markets. But the Euro-region markets failed to keep up the positive momentum for long and pared gains and undermined domestic sentiments.

Back home, the NSE’s 50-share broadly followed index Nifty, got pounded by close to triple digit losses to settle below the psychological 5,200 support level while Bombay Stock Exchange’s Sensitive Index - Sensex suffered nasty over three hundred point laceration to finish below the crucial 17,100 mark. Moreover, the broader markets too settled on a pessimistic note with around one and half a percent cuts, performing in line with their larger peers. The markets plummeted on extremely large volumes of over Rs 2.04 lakh crore while the turnover for NSE F&O segment too remained on the higher side as compared to that on Friday at over Rs 1.76 lakh crore. The market breadth remained abysmal through the session as there were only 919 shares on the gaining side against 1955 shares on the losing side while 113 shares remained unchanged. 

Finally, the BSE Sensex plunged by 308.96 points or 1.78% to settle at 17,052.78, while the S&P CNX Nifty shaved off 93.95 points or 1.78% to close at 5,184.25.

The BSE Sensex touched a high and a low of 17,377.59 and 17,021.85 respectively. The BSE Mid cap and Small cap index down by 1.60% and 1.40% respectively.

There was no gainer on the Sensex, while ICICI Bank down 4.30%, Sterlite Industries down 4.16%, Cipla down by 4.10%, Tata Power down by 3.77% and DLF down by 3.59% were the major losers on the index.

The top losers on the BSE sectoral space were Realty down 3.58%, Power down 2.56%, Bankex down 2.44%, Metal down 2.19% and PSU down 2.01%, while there was no gainer on the BSE sectoral space.

Meanwhile, Prime Minister Manmohan Singh has urged Korean companies to choose India as their investment destination. He has also asked South Korean businessmen to set up manufacturing bases in India and also help to expand its burgeoning solar and nuclear power sectors by investing in environment-friendly technologies.

The Prime Minister has reasoned that India is an economy with strong fundamentals and has managed to sustain a 7% growth despite an adverse global atmosphere. It has a high savings’ rate of 30-35% and a large percentage of youth population. The government on its part is also investing hugely to develop its human as well as physical infrastructure. Rural India is a definite attraction as it developing fast and has great demand potential. Hence it would be profitable for both countries to increase trade links.

The PM has stressed that India is a stable and profitable long term investment opportunity and the government is willing to take pro-active steps to address investor grievances and improve the business climate in the country. Acknowledging that there have been delays regarding the Rs 52,000 crore POSCO project in Odisha, the PM has assured that the government is keen to move forward with the project and there has been some progress in this regard.

Korean giant POSCO had planned to set up an integrated steel mill at Jagatsinghpur district in Odisha at an investment of Rs 52,000 crore but the project has been hanging for over six years due to hurdles in land acquisition and regulatory clearances.

The S&P CNX Nifty touched a high and low of 5,274.95 and 5,174.90 respectively.

The top gainers on the Nifty were JP Associates up 2.83%, Kotak Bank up 0.84%, ITC up 0.20% and Dr Reddy up 0.07%. On the flip side, IDFC down by 4.99%, Sesa Goa down 4.61%, Axis Bank down 4.52%, Tata Power down 4.37% and PNB down 4.36% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 was up 0.05%, Britain’s FTSE 100 up 0.49%, while Germany's DAX was up by 0.72%.

Southward journey continues in Asian region and most of the Asian equity indices snapped the session in the negative terrain on Monday, with materials and technology stocks losing ground amid concerns about the impact on profits due to slowdown in the global economy. Moreover, the sentiments in the region remained dampened as lingering concerns about the Chinese economy cancelling out a positive lead from Wall Street and bargain hunting.

Meanwhile, Taiwan stocks closed 1.35 percent lower, pressured by heavyweights such as TSMC, with glass and ceramics countered the biggest losers, down 3.61 percent. Hong Kong shares were flat at midday on Monday, as strength in local developers offset weakness in Chinese banks on fears of a potential incorrect classification of local government loans and fresh fund raising in the sector. However, Japanese Nikkei shares average edged a tad higher, recovering from last week's retreat, as investors bought metal shares and picked up laggard blue chips, with a softer yen continuing to underpin market sentiment.